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Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

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Diversification does not ensure a profit or protect against a loss in a declining market.

In my last post, I asked if you have a specific number in mind when it comes to saving for retirement, how you arrived at that number, whether you’re on track to reaching it—and, if not, what it would take to get you there.

Your response was tremendous, with more than 300 of you writing in. As Philip Moeller wrote in his blog, “the responses to Rinaldi’s blog post are uniformly thoughtful and heartfelt. Rinaldi learned a lot from them. So did I. So can you. Enormous amount of information, wise counsel, and guidance shared.”

Phil is right. There was an amazing amount of information shared, and I did learn a lot. You willingly offered the strategies, approaches, and philosophies that have helped you navigate your way to a financially secure retirement, and I’m very grateful. Your stories describing your experiences, successes, and challenges brought home a number of lessons.

First, be ready early. Retirement can happen to you unexpectedly due to a layoff or health issue, so if you’re planning to retire at 65, try to be ready by 60 or 62. Many of you described how flexible you’ve become in working within your financial resources and managing not to exceed your budget. Yes, it is possible, as many of you pointed out, to live in retirement on less than 80% of your pre-retirement income. It’s also possible to get a bit out of control and spend too much in the early retirement years if you’re not careful. Many of you reinforced the value of entering retirement with no debt—not even a mortgage—and of regularly “running the numbers” to be sure that your expenses and returns are not too far off expectations. One reader suggested that writing out a budget and tracking expenses carefully can help reduce expenses immediately. And if you’re still working, take any raise and put half in savings and the rest to paying down debt.

Something that struck me loud and clear in your comments was the specter of health care costs in retirement. This distressing shadow was enough to give me real pause. We hear about it in the press, but to read your comments on the uncertainty this burden adds to your personal situations and your financial lives made it very real. As many of you said, it’s not the basics that are the real threat—it’s the unknowns around issues like nursing home care costs that upset the apple cart.

In a March 2010 paper from the Center for Retirement Research at Boston College, researchers indicated that the present total of lifetime uninsured health care costs for a married couple at age 65 is about $197,000 (including insurance premiums, co-pays, and home health services). Add to that nursing home care costs, and the number balloons to an estimated $260,000. Using these numbers, one-third of all Americans turning 65 in 2010 will eventually need at least three months of nursing home care.

More reading revealed that out-of-pocket expenses can be a rude awakening for retirees. Another source indicated that Medicare beneficiaries between ages 65 and 74 spend an average of $2,920 a year on out-of-pocket expenses, including Part B premiums and prescription costs. After age 85 this nearly doubles, to an average of $4,615.

There’s already enough blame and discussion regarding the causes of these high costs, who is responsible for them, and how much higher they will continue to climb. What I’d like to know is, were escalating health costs a surprise that snuck up on you when you retired? Did you plan for them? And how do you handle them?

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Ellen Rinaldi

Ellen is a leader in Vanguard Planning and Development Division, where she oversees security measures that protect client and fund information. She joined Vanguard in 1997 and previously led our advice department and oversaw our investment counseling and research team. Prior to joining Vanguard, Ellen spent 20 years in the insurance industry. Ellen earned a B.A. from the University of Connecticut, a J.D. from Suffolk University, and a master of laws (LL.M.) from Boston University.

Comments

Anonymous | July 7, 2011 4:25 pm

HSA accounts are the way to go if you retire early! We paid less than $ 5000 at 60&64 for $10000 deductible & pay 7200 into the HSA. We pay all costs. The HSA is a top line write off on our taxes and acts as an annuity /IRA for excess health costs.

Anonymous | July 7, 2011 4:15 pm

I retired in 1993 at age 63. My company supplemental insurance was $65.00 dollars each per month for my wife and I. ($1560 per yr.) Today my premiums are $298 each per mo. ($7150.00) per yr.
That eaquals 459% increase over 18 1/2 yrs. or 24.8 percent per yr.

My advice???? make sure you have adequate funding for your premium payments and stay healthy.

Anonymous | July 7, 2011 4:03 pm

My friend retired from the Federal Government at 58 years of age after 25+ years of service. Her federal pension is 80% of her salary – and since she was in management, she’s bringing in approx. 85K-90K per year. I worked for a premier multi-national corporation for approx. 20 years. My pension per year is 8K. I’ve had some 6 – 7 jobs since leaving the corporate job in ’92. I retired (my job went to Iowa) at 67 years of age. My friend just bought a new SUV (approx. 35K); takes at least one European vacation per year; and has disposable income to eat out several times a week. She’s unmarried. My car is 11 years old and is still going ‘strong’ with 160K miles. My spouse and I haven’t taken a vacation in 10 years. We occasionally eat out at Wegmans. We still pay a mortgage. I’m voting for anyone – repeat, anyone – who will freeze Federal pensions. The American taxpayer is operating in the red – red – red!!!!

Anonymous | July 7, 2011 3:46 pm

I have to say this topic truly surprised both my wife and me.
Supposedly we are the lucky ones.
We are in good financial shape and healthy.
We are 69 and 72 and have Medicare parts A and B.
So what is the problem.
Part B costs $2,230 for the two of us per year
Since Medicare does not cover all its expenses, we have supplemental insurance.
Cost for the two of us $6,000 per year.
Part D drug insurance for the two of us $600 per year.
The drug insurance still requires co-pays.
That is over $9,000 per year.
Of course there is dental care, eye glasses, etc.
And now for the really BIG surprise.
In New york City where we live, we are finding more and more doctors who will not accept Medicare, or will not take new Medicare patients. Due to the constant reductions in fees paid by Medicare to doctors, it just not worth it to some. In some cases this means that one is effectively uninsured and paying full freight.
This is just not the way I pictured life 10 years ago.
Welcome to your golden years.

Anonymous | July 7, 2011 3:44 pm

I agree with the post about our CONGRESS. Why do we individuals pay the health insurance premiums and the retirement benefits for the United States elected officials? Since they are NOT Federal “employees” and voluntarily elect to run as public servants, American citizens should not be required to FUND their private health and retirement plans. How do we stop that when they not only vote for their benefits package but also vote for their annual raises? That is not a system of valid “checks and balances.” Our founding Fathers would not approve of what the Congress has become—an elite group of polarized bureaucrats who vote themselves all sorts of privileges and ignore the issues of the American middle class.

Anonymous | July 7, 2011 3:39 pm

I am 62, and became unemployed at the age of 60. Had COBRA till recently. I currently have a high deductible “catastrophic” individual policy and pay my own dental and vision. I had been looking forward to the pre-existing bridge coverage till 2014 for under age 65, under Obamacare. I was dissapointed. The premiums are too high and the qualifiying pre-existing conditions are too limited. I have Type II diabetes, being controlled by diet and exercise, with no medication. This was enough to disqualify me from an individual comprehensive medical plan, but is not on the list of qualifying pre-existing conditions under Obamacare. Cigna Insurance accepted my premium payments for more than 40 years, while I was a low risk, but will not accept me for 3 years of moderate risk. Cigna says they don’t issue individual coverage in Ohio.

Anonymous | July 7, 2011 3:31 pm

I’m 73 and still working. My insurance is medicare plus secondary insurance from Blue Cross for my wife and Cigna for me. For the two of us our health care costs, excluding the medicare deductions from social security, averaged $948 per month in 2010. Our food – $313, gasoline – $117 and modest mortgage – $464 for a total of $894 per month.

Our normal medical and dental costs are more than our food, housing and car fuel combined. We’re lucky we have a net worth large enough to provide for all of that comfortably.

Anonymous | December 17, 2011 9:36 am

Anonymous | July 7, 2011 3:31 pm

I am almost 59 (healthy) and my husband will be 65 in October. He is retired and I am facing a lay-off in the near future due to downsizing/company acquisition. We have no children and have been saving (and investing) most of our lives. My husband takes many meds including expensive lung meds (DON’T SMOKE!) and of course, like everyone else, are concerned about un-expected medical costs. I purchased long-term care insurance 3 years ago since I will most likely outlive my husband and may potentially need the help. We have invested (made / lost money) but are now looking at getting more aggressive in order to build up a better nest egg given the many issues on my side of the family (Lou Gehrig’s disease, Huntington’s disease, lung cancer, stroke). I can get health care thru my previous employer (as a retiree) but that will probably cost us around $850/month. If my husband takes his VA health coverage, then our monthly cost will be reduced by about half. We will have to buy our own dental. Regardless, unexpected medical issues for either one of us could really cut into our retirement funds. Congress MUST wake up!! Perhaps paying for their OWN health care will help them better understand how us “baby boomers” feel ! My advice to younger folks is to save early AND as much as you can, eat healthy, exercise and LEARN HOW to invest your funds. Schools don’t really teach this to the young but there are resources galore on the Internet and the library –USE…

Anonymous | July 7, 2011 3:29 pm

Both of our mothers have lived to an old age. The typical cost for a month’s stay in a non-assisted living retirement home is about $3500/mo. and going up every year. When my mother-in-law required assisted living care it went up to $5000/mo. and when she had to go to full time nursing care it went to $7500/mo. Fortunately, the end term hospice care, while in the nursing home, was paid for by medicare (at least we haven’t seen a bill so far). We still paid the $7500/mo. for the facility. All of this did not include her husband’s former employer’s monthly health insurance of $373/mo., medication copays of $250 or more per month, Depends, wheel chair, walker and canes. Weekly 5 hour drives (think $45 in gas) to visit and observe her care, and who knows what else. So, whatever the planning in preparing oneself for retirement heathcare costs, make sure you are also prepared to help momma. It can be one heck of an unanticipated cost.

Anonymous | July 7, 2011 3:27 pm

The bottom line is that when it comes to health care cost it’s so huge and this explains the reason why President Obama when after the insurance industry to stop the hight cost but, Republican twisted all back to the American people and called it “Obama Care,” as it was a bad thing to do – And most believed that it was a bad thing – until you are faced with having to pay for the high cost. Just look at how much these CEO’s make in just insane.

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At Vanguard, we’ve always believed in candid, direct communication with investors. In fact, it’s one of our core principles. In 2009, we created the Vanguard Blog so that we could talk about what’s happening in our industry and in the economy—and hear what’s on the minds of investors like you. More

Visit vanguard.com or contact your broker to obtain a Vanguard ETF or fund prospectus which contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.

Investments in bond funds are subject to interest rate, credit, and inflation risk.

Diversification does not ensure a profit or protect against a loss in a declining market.